3 Dividend ETFs To Consider

Dividends are a big contributor to the overall return of benchmarks such as the Standard & Poor's 500. The focused exchange traded funds offer investors low cost exposure to large numbers of dividend paying stocks, in one shot.

"As of this writing, the U.S. stock market is unattractively valued compared to its historical average. In order to combat depressed consumer demand, rich-world central banks have driven down real interest rates to punishingly low levels, inflating asset prices. At a price of around 1,300, the S&P 500 yields about 1.8% and historically has grown real per-share dividends by about 1% to 2% annualized. Add in share buybacks, a hidden boost to yield, and U.S. stock investors can reasonably expect a long-run 3.5% to 4.5% annualized real return," Samuel Lee wrote in an ETF analysis on Morningstar.

2012 has been the year of the dividend focused ETF, a continuing trend from 2011. As the S&P 500 has been trending down in May, these focused funds can prove beneficial in a portfolio. Christian Magoon on Nasdaq reports that there are three dividend ETFs that have been the best in their sector this year:

Vanguard High Dividend Yield ETF (NYSEARCA:VYM) This ETF yields 3.2% and costs 13 basis points. Year to date, VYM has gained 7.79% after returning a bit over 10% in 2011. Industrials, energy and consumer staples are the top sectors represented.

Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) A yield of 2.12% and an expense ratio of 0.18% still puts the yield higher than the S&P 500.VIG has generated a 7.2% gain this year after a 6.1% return last year. Consumer staples, consumer discretionary and information technology make up over 60% of the portfolio.

Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) Year to date SCHD has gained 6.95%, and wont have a one year track record until October. The yield is at 2.9% and the expense ratio is set at 0.17%. Consumer staples, industrials and health care dominate the holdings.

The aforementioned ETFs are among the best in their class. For one, they all have substantially low expense ratios, especially in contrast to mutual funds. Also, the funds all provide defense in uncertain markets.

Investors should take note that in periods of market appreciation of depreciation dividend investing often produces muted results. When compared to investing in the broad equity market, dividend investing can underperform in the good times and outperform in the bad times, reports Magoon.

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.